Book Smart vs. Street Smart

It’s clear that some people have better judgment than others. For example, 25% of people on social media have posted something they later regretted, the divorce rate in the US is 50%, and over the past decade the tattoo removal industry has grown 440%.

Although tramp stamps and tasteless tweets are mostly benign mistakes, there are a remarkable number of people whose poor decision-making costs their careers. More remarkable is how many of these unfortunate individuals are otherwise intelligent creatures. Why do so many smart people make so many dumb decisions?

To the scientific community, intelligence is best measured by IQ tests. Although these tests have been shown to predict college grades, and to a lesser degree job performance and leadership effectiveness, experience shows us that people with high IQs are still remarkably capable of making dumb decisions. There are three reasons for this:

1. Unlike IQ tests, the problems we face in real life don’t have an objective solution. Rather, some decisions have better consequences than others, but we only find out after the fact. As Steve Jobs famously observed, you can only connect the dots going back.

2. Our brains are overwhelmed and exhausted. The average American consumes 34GB of data each day. Logic and data-based judgments take up a lot of bandwidth, so our brains create subconscious shortcuts and biases that help us navigate the countless decisions we make every day with less cognitive effort. Consider, for example, the following problem:

A ball and a bat together cost $1.10. The bat costs $1.00 more than the ball. How much does the ball cost?

Most people will intuitively answer, incorrectly, that the ball costs 10 cents. In fact, in a study of 248 university students, only 21 percent of participants came up with the correct answer, five cents. The same group was then asked another question:

A magazine and a banana together cost $2.90. The magazine costs $2. How much does the banana cost?

In this instance, 98 percent of participants answered correctly. When we are faced with problems that are difficult or have an ambiguous solution, our brains purposefully substitute an easier question in order to come up with an answer. The answer we come up with may not be optimal, but for most situations – choosing, for instance, what we eat for breakfast – it will be good enough. After all, the consequences of choosing a bowl Frosted Flakes over Fiber One are relatively small. The problem is, at work, people have to rapidly respond to dozens of difficult, ambiguous problems every day.

3. Everyone makes mistakes. In fact, some studies suggest the base rate for bad decision making is as much as 50%. Unfortunately, when most people are confronted with the news that they made a bad decision, they are unwilling to admit they made a mistake. Instead, we tend to react in a combination of three characteristic ways:

Defensiveness – these are the people who react to feedback by getting emotional. They blame other people, circumstances, timing, and other factors beyond their control.

Smiling through their teeth – these people appear willing to admit failure and listen to feedback, but are really just putting on an act to avoid confrontation.

How to Make Smarter Decisions (And Avoid Looking Dumb)

In the real world, there is rarely enough time or information to make a reasoned decision, and even if there were, there is no pre-defined formulae to solve the problems we have. On the upside, there is a lot you can do to minimize your default reasoning biases. Data-driven assessment and competent coaching will help you understand how you normally think, and how you are likely to distort reality in your favor, which should help you avoid relying on these mental shortcuts to make important decisions. Furthermore, this should also help you learn from experience, which is what you get when you didn’t get what you wanted to get. Every mistake has the potential to make you wiser, which should in turn reduce the probability of repeating old mistakes.

About the author

Dr. Tomas Chamorro-Premuzic

Dr. Tomas Chamorro-Premuzic is an international authority in psychological profiling, talent management, leadership development, and people analytics. He is the Chief Talent Scientist at Manpower Group, co-founder and CEO of BrazenX, and Professor of Business Psychology at both University College London, and Columbia University. He has previously held academic positions at New York University and the London School of Economics, and lectured at Harvard Business School, Stanford Business School, London Business School, Johns Hopkins, IMD, and INSEAD, as well as being the CEO at Hogan Assessment Systems.
Dr. Tomas has published 9 books and over 140 scientific papers (h index 60), making him one of the most prolific social scientists of his generation. His work has received awards by the American Psychological Association and the International Society for the Study of Individual Differences, and the Society for Industrial-Organizational Psychology, to which he is a Fellow. Dr. Tomas is also the founding director of University College London's Industrial-Organizational and Business Psychology program, and the Chief Psychometric Advisor to Harvard's Entrepreneurial Finance Lab.
Over the past 20 years, he has consulted to a range of clients in financial services (e.g., JP Morgan, HSBC, Goldman Sachs), advertising (e.g., Google, WPP, BBH), media (e.g., BBC, Red Bull, Twitter, Spotify), consumer goods (e.g., Unilever, Reckitt Benckiser, P&G), fashion (e.g., LVMH, Net-a-Porter, Valentino), government (e.g., British Army, Royal Mail, NHS), and intergovernmental organizations (e.g., United Nations and World Bank).
Dr. Tomas' media career comprises over 100 TV appearances, including in the BBC, CNN, and Sky, and regular features in Harvard Business Review, the Guardian, Fast Company, Forbes, and the Huffington Post. Dr. Tomas is a keynote speaker for the Institute of Economic Affairs and the co-founder and Chairman of metaprofiling, a digital start-up that enables organizations to identify entrepreneurial potential. He was born and raised in the Villa Freud district of Buenos Aires, but spent most of his professional career in London, and lives in Brooklyn now.

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